Net profit rose to Rs1,701 crore in the quarter ended 31 December from Rs1,521 crore a year ago. The profit was higher than the median estimate of Rs1,674.8 crore in a Bloomberg poll of 15 analysts.

Net interest income, the difference between interest earned on loans and paid on deposits, rose 17% to Rs2,769 crore from Rs2,363 crore a year earlier.

HDFC’s total loan book grew 16% year-on-year to Rs2.86 trillion on the back of growth in non-individual loans. This included loans for lease rental discounting, where the equated monthly instalment depends on rent paid by the tenant.

During the quarter, the firm also sold individual loans worth Rs3,355 crore to HDFC Bank. The average size of home loans remained unchanged at Rs25.7 lakh.

The company provided Rs830 crore against tax during the October-December quarter, inclusive of a deferred tax liability worth Rs108 crore against a special reserve. It had provided Rs1,980 crore during the same period last year.

Gross non-performing loans in the quarter amounted to Rs2,341 crore, marginally higher than in the second quarter. This is equivalent to 0.81% of the loan portfolio, HDFC said in its statement.

Non-performing loans in the individual portfolio stood at 0.65% while those in the non-individual portfolio stood at 1.16%. The firm clarified that it has not taken the benefit of relaxation in bad loan norms for small-value loans permitted by the Reserve Bank of India and National Housing Bank following demonetization. The central bank had allowed lenders 90 days for classifying stressed standard accounts as non-performing assets if the payments were due between 1 November and 31 December.

The housing finance firm remains positive about its outlook. “By March, individual loan book growth should come back to normalcy. Non-individual has not been affected due to demonetization. We expect to maintain growth of 15-18% in loan book,” said Keki Mistry, vice-chairman and chief executive, HDFC.

According to Angel Broking, “Gross non-performing assets saw a marginal rise and consequently, there was a rise in provisions, but we don’t see that as a cause of concern. With lending rates now becoming attractive, the individual loan book should see pickup in demand in the coming quarters.”

But concerns remain. A 3 January report by Morgan Stanley warns of increased risk of higher prepayments and pressure on net interest margins following the sharp cut in lending rates.

“Banks are likely to be aggressive in pursuing loan takeovers, given weak system loan growth. Housing finance companies will likely be forced to either reprice old loans lower or risk higher prepayments from balance transfers. But new business growth is likely to be weak, and we expect pressure in the next few quarters from old loan repricing even as fixed-rate liabilities take time to reprice. We assume half of the home loan book will reprice by 75 basis points in the near term,” the report states.